As part of the enrollment process, participants are asked to elect a beneficiary. However, this step is often not completed or kept up to date as time goes on, which can make death distributions more complicated than they need to be. When a participant names a beneficiary, it helps to ensure their account balance will be distributed to the person intended. However, updating the designation is also very important as life events occur.

When a plan includes automatic enrollment provisions, it does help participants begin saving for retirement. However, if they use the default deferral rate and the default investment option, they may neglect to elect a beneficiary at that time since they aren’t filling out any other enrollment paperwork, or maybe they are married and assume the funds will automatically be paid to their spouse. What they need to factor in, though, is how their account balance will be paid if they do not make an election or if they fail to update it as time goes on.

If a current beneficiary election is not on record at the time of a participant’s death, the default rules of the plan will determine the beneficiary, which may be the following order: surviving spouse, children in equal shares, surviving parents in equal shares, and lastly, estates. But what if the participant goes through a divorce and doesn’t update their election? What if there are more children or stepchildren that are not added to the election? What if there is no spouse, parent, or child to benefit and no estate?

Having a beneficiary election on file makes the distribution process much smoother for all involved and requires less interpretation, which often involves engaging in the services of an attorney. When a participant is enrolled in the plan, it is best to have them designate a beneficiary even if it takes making the request several times until they do. Then, make the discussion part of a recurring process to have the participants review and update the information so that it’s not an issue if the need to reference the beneficiary should arise.

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